Attached files
file | filename |
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EX-32.2 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND IV | cigf4_ex32-2.htm |
EX-32.1 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND IV | cigf4_ex32-1.htm |
EX-31.2 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND IV | cigf4_ex31-2.htm |
EX-31.1 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND IV | cigf4_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017 or
☐ TRANSITION REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number: 333-62526
COMMONWEALTH INCOME & GROWTH FUND IV
(Exact name of registrant as specified in its charter)
Pennsylvania
|
23-3080409
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification Number)
|
17755 US Highway 19 North
Suite 400
Clearwater, FL 33764
(Address, including zip code, of principal executive
offices)
(877) 654-1500
(Registrant’s telephone number including area
code)
Indicate by check mark whether the registrant (i) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(ii) has been subject to such filing requirements for the past 90
days:
YES ☒
NO ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES
☒
NO ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definition of "accelerated
filer, “large accelerated filer" and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
|
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
Non-accelerated
filer ☐
|
Smaller
reporting company ☒
|
(Do not
check if a smaller reporting company.)
|
Emerging
growth company ☐
|
Indicate
by check mark whether the registrant is an emerging growth company
(as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). YES
☐
NO ☒
1
FORM 10-Q
SEPTEMBER 30, 2017
TABLE OF CONTENTS
PART
I
|
||
Item
1.
|
Financial
Statements
|
3
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
21
|
Item
4.
|
Controls
and Procedures
|
21
|
PART
II
|
||
Item
1.
|
Legal
Proceedings
|
22
|
Item
1A.
|
Risk
Factors
|
23
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
23
|
Item
3.
|
Defaults
Upon Senior Securities
|
23
|
Item
4.
|
Mine
Safety Disclosures
|
23
|
Item
5.
|
Other
Information
|
23
|
Item
6.
|
Exhibits
|
23
|
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Commonwealth
Income & Growth Fund IV
|
||
Condensed
Balance Sheets
|
||
|
|
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
(unaudited)
|
|
ASSETS
|
|
|
Cash
|
$34,154
|
$19,091
|
Lease income
receivable, net of reserve of approximately $6,000 at September 30,
2017 and December 31, 2016
|
12,042
|
13,154
|
Other
receivables
|
41,590
|
16,172
|
Refundable
deposits
|
1,130
|
1,130
|
|
88,916
|
49,547
|
|
|
|
Net investment in
finance leases
|
20,286
|
29,808
|
|
|
|
Equipment, at
cost
|
3,319,287
|
3,643,063
|
Accumulated
depreciation
|
(2,083,555)
|
(1,669,525)
|
|
1,235,732
|
1,973,538
|
|
|
|
Equipment
acquisition costs, net of accumulated amortization of approximately
$6,000 and $11,000 at September 30, 2017 and December 31, 2016,
respectively
|
136
|
2,582
|
|
|
|
Total
Assets
|
$1,345,070
|
$2,055,475
|
|
|
|
LIABILITIES
AND PARTNERS' CAPITAL
|
|
|
LIABILITIES
|
|
|
Accounts
payable
|
$79,407
|
$80,788
|
Accounts payable,
CIGF, Inc., net
|
193,671
|
218,395
|
Accounts payable,
Commonwealth Capital Corp., net
|
221,414
|
298,960
|
Other accrued
expenses
|
10,992
|
18,910
|
Unearned lease
income
|
36,403
|
21,798
|
Notes
payable
|
756,317
|
1,348,830
|
Total
Liabilities
|
1,298,204
|
1,987,681
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
PARTNERS'
CAPITAL
|
|
|
General
Partner
|
1,000
|
1,000
|
Limited
Partners
|
45,866
|
66,794
|
Total
Partners' Capital
|
46,866
|
67,794
|
Total
Liabilities and Partners' Capital
|
$1,345,070
|
$2,055,475
|
|
|
|
see
accompanying notes to condensed financial statements
|
3
Commonwealth
Income & Growth Fund IV
|
||||
Condensed
Statements of Operations
|
||||
(unaudited)
|
||||
|
|
|
|
|
|
Three
Months Ended
|
Nine
Months Ended
|
||
|
September
30,
|
September
30,
|
||
|
2017
|
2016
|
2017
|
2016
|
Revenue
|
|
|
|
|
Lease
|
$224,070
|
$248,983
|
$699,668
|
$757,208
|
Interest and
other
|
341
|
557
|
1,329
|
2,167
|
Gain on sale of
equipment
|
-
|
-
|
-
|
590
|
Total
revenue and gain on sale of equipment
|
224,411
|
249,540
|
700,997
|
759,965
|
|
|
|
|
|
Expenses
|
|
|
|
|
Operating,
excluding depreciation and amortization
|
8,192
|
11,877
|
62,068
|
62,551
|
Interest
|
10,280
|
19,240
|
37,509
|
63,937
|
Depreciation
|
190,963
|
220,088
|
595,500
|
664,229
|
Amortization of
equipment acquisition costs and deferred expenses
|
588
|
1,357
|
2,446
|
4,640
|
Loss on sale of
equipment
|
26,070
|
-
|
24,402
|
-
|
Total
expenses
|
236,093
|
252,562
|
721,925
|
795,357
|
|
|
|
|
|
Net
loss
|
$(11,682)
|
$(3,022)
|
$(20,928)
|
$(35,392)
|
|
|
|
|
|
Net
loss allocated to Limited Partners
|
$(11,682)
|
$(3,022)
|
$(20,928)
|
$(35,392)
|
|
|
|
|
|
Net
loss per equivalent Limited Partnership unit
|
$(0.02)
|
$(0.00)
|
$(0.03)
|
$(0.05)
|
|
|
|
|
|
Weighted
average number of equivalent Limited Partnership units outstanding
during the period
|
747,925
|
747,925
|
747,925
|
747,925
|
|
|
|
|
|
see
accompanying notes to condensed financial statements
|
4
Commonwealth
Income & Growth Fund IV
|
|||||
Condensed
Statement of Partners' Capital
|
|||||
For
the nine months ended September 30, 2017
|
|||||
(unaudited)
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
Limited
|
|
|
|
|
Partner
|
Partner
|
General
|
Limited
|
|
|
Units
|
Units
|
Partner
|
Partners
|
Total
|
Balance,
January 1, 2017
|
50
|
747,925
|
$1,000
|
$66,794
|
$67,794
|
Net
loss
|
-
|
-
|
-
|
(20,928)
|
(20,928)
|
Balance,
September 30, 2017
|
50
|
747,925
|
$1,000
|
$45,866
|
$46,866
|
|
|
|
|
|
|
see
accompanying notes to condensed financial statements
|
5
Commonwealth
Income & Growth Fund IV
|
||
Condensed
Statements of Cash Flow
|
||
(unaudited)
|
||
|
Nine
months ended
|
|
|
September
30,
|
|
|
2017
|
2016
|
|
|
|
Net
cash (used in) provided by operating activities
|
$(113,571)
|
$20,851
|
|
|
|
Cash
flows from investing activities
|
|
|
Capital
expenditures
|
-
|
(30,174)
|
Payments received
from finance leases
|
10,729
|
12,966
|
Net proceeds from
sale of equipment
|
117,905
|
7,173
|
Net
cash provided by (used in) investing activities
|
128,634
|
(10,035)
|
|
|
|
Net
increase in cash
|
15,063
|
10,816
|
|
|
|
Cash,
beginning of the period
|
19,091
|
4,152
|
|
|
|
Cash,
end of the period
|
$34,154
|
$14,968
|
|
|
|
see
accompanying notes to condensed financial statements
|
6
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Business
Commonwealth
Income and Growth Fund IV (“CIGF4” or the
“Partnership” or the “Fund”) is a limited
partnership organized in the Commonwealth of Pennsylvania on April
20, 2001. The Partnership offered $15,000,000 of limited
partnership interest to the public on October 19, 2001. The
Partnership raised the minimum capital required ($1,150,000) and
commenced operations on July 8, 2002. The Partnership was fully
subscribed and terminated its offering of units on September 15,
2003 with 749,950 units ($14,967,729) sold.
The
Partnership was originally scheduled to end its operational phase
on December 31, 2013. During the year ended December 31,
2013, the operational phase was officially extended to December 31,
2015 through a proxy vote initiated by the General Partner.
The Partnership’s operational phase ended on December 31,
2015. The Fund is scheduled to expire on December 31,
2017. The General Partner has not formally approved a plan
for liquidation at this time. As such, the Partnership will
continue to report its financial statements on a going concern
basis until a formal plan of liquidation is approved by the General
Partner.
During
the Partnership’s operational phase, the investment strategy
was to acquire high technology equipment consisting of medical,
telecommunications and inventory management equipment. As the
Partnership’s operational phase has ended on December 31,
2015, the General Partner’s will begin the wind down process
as it prepares the Fund for the liquidation phase which is planned
to commence on December 31, 2017.
The
Partnership used the proceeds of the offering to acquire, own and
lease various types of information technology, medical technology,
telecommunications technology, inventory management equipment and
other similar capital equipment, which is leased primarily to U.S.
corporations and institutions. Commonwealth Capital Corp
(“CCC”), on behalf of the Partnership and other
affiliated partnerships, acquires equipment subject to associated
debt obligations and lease agreements and allocates a participation
in the cost, debt and lease revenue to the various partnerships
that it manages based on certain risk factors.
The
Partnership’s General Partner is Commonwealth Income &
Growth Fund, Inc. (the “General Partner”), a
Pennsylvania corporation which is an indirect wholly-owned
subsidiary of CCC. CCC is a member of the Investment Program
Association (IPA), REISA, Financial Planning Association (FPA), and
the Equipment Leasing and Finance Association (ELFA).
Liquidity and Going Concern
The
General Partner and CCC have committed to fund, either through cash
contributions and/or forgiveness of indebtedness, any necessary
operational cash shortfalls of the Partnership through September
30, 2018. The General Partner will continue to reassess the funding
of limited partner distributions throughout 2017 and will continue
to waive certain fees. The General Partner and CCC will also
determine if related party payables owed to the Partnership may be
deferred (if deemed necessary in an effort to further increase the
Partnership’s cash flow). If available cash flow or net
disposition proceeds are insufficient to cover the Partnership
expenses and liabilities on a short and long term basis, the
Partnership may attempt to obtain additional funds by disposing of
or refinancing equipment, or by borrowing within its permissible
limits.
The
Partnership has incurred recurring losses and has a working capital
deficit at September 30, 2017. The Partnership believes it has
alleviated these conditions as discussed above. Allocations of
income and distributions of cash are based on the Agreement. The
various allocations under the Agreement prevent any limited
partner’s capital account from being reduced below zero and
ensure the capital accounts reflect the anticipated sharing ratios
of cash distributions, as defined in the Agreement. During the nine
months ended September 30, 2017, the General Partner elected to
forgo distributions and allocations of net income owed to it, and
suspended limited partner distributions. The General Partner will
continue to reassess the funding of limited partner distributions
throughout 2017 and will continue to waive certain
fees.
7
2. Summary of Significant Accounting Policies
Basis of Presentation
The
financial information presented as of any date other than December
31, 2016 has been prepared from the books and records without
audit. The following unaudited condensed financial statements have
been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Financial information as of
December 31, 2016 has been derived from the audited financial
statements of the Partnership, but does not include all disclosures
required by generally accepted accounting principles to be included
in audited financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for
the periods indicated, have been included. Operating results for
the nine months ended September 30, 2017 are not necessarily
indicative of financial results that may be expected for the full
year ended December 31, 2017.
Disclosure of Fair Value of Financial Instruments
Estimated
fair value was determined by management using available market
information and appropriate valuation methodologies. However,
judgment was necessary to interpret market data and develop
estimated fair value. Cash, receivables, accounts payable and
accrued expenses and other liabilities are carried at amounts which
reasonably approximate their fair values as of September 30, 2017
and December 31, 2016 due to the short term nature of these
financial instruments.
The
Partnership’s long-term debt consists of notes payable, which
are secured by specific equipment and are nonrecourse liabilities
of the Partnership. The estimated fair value of this debt at
September 30, 2017 and December 31, 2016 approximates the carrying
value of these instruments, due to the interest rates on the debt
approximating current market interest rates. The Partnership
classifies the fair value of its notes payable within Level 2 of
the valuation hierarchy based on the observable inputs used to
estimate fair value.
Cash
At September 30, 2017, cash was held in one bank account maintained
at one financial institution with a balance of approximately
$38,000. Bank accounts are federally insured up to $250,000
by the FDIC. At September 30, 2017, the total cash bank
balance was as follows:
At September 30, 2017
|
Balance
|
Total
bank balance
|
$38,000
|
FDIC
insured
|
(38,000)
|
Uninsured
amount
|
$-
|
The
Partnership's deposits are fully insured by the FDIC. The
Partnership has not experienced any losses in our accounts, and
believes it is not exposed to any significant credit risk. The
amounts in such accounts will fluctuate throughout 2017 due to many
factors, including cash receipts and interest rates.
8
Recently Adopted Accounting Pronouncements
In
October 2016, the FASB issued Accounting Standards Update
2016-17— Consolidation
(Topic 810): Interests Held through Related Parties That Are under
Common Control. The amendments in this Update are effective
for public business entities for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal
years. Early adoption is permitted, including adoption in an
interim period. This standard was adopted January 1, 2017; however,
adoption of this ASU had no impact on the Partnership’s
financial statements during the nine months ended September 30,
2017.
Recent Accounting Pronouncements Not Yet Adopted
In
August 2016, the FASB issued Accounting Standards Update
2016-15—Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments- The amendments in this Update apply to all
entities, including both business entities and not-for-profit
entities that are required to present a statement of cash flows
under Topic 230. The amendments in this Update are effective for
public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. Early
adoption is permitted, including adoption in an interim period. The
Partnership is currently evaluating the effect that this ASU will
have on its financial statements.
In
February 2016, the FASB issued Accounting Standards Update No.
2016-02, Leases (Topic 842)
Section A—Leases: Amendments to the FASB Accounting Standards
Codification® Section B—Conforming Amendments Related to
Leases: Amendments to the FASB Accounting Standards
Codification® Section C—Background Information and Basis
for Conclusions- Effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal
years, for any of the following: A public business entity; A
not-for-profit entity that has issued, or is a conduit bond obligor
for, securities that are traded, listed, or quoted on an exchange
or an over-the-counter market; An employee benefit plan that files
financial statements with the U.S. Securities and Exchange
Commission (SEC). The new standard requires the recognition and
measurement of leases at the beginning of the earliest period
presented using a modified retrospective approach, which includes a
number of optional practical expedients that entities may elect to
apply. This guidance also expands the requirements for
lessees to record leases embedded in other arrangements and the
required quantitative and qualitative disclosures surrounding
leases. We have begun accumulating the information related to
leases and are evaluating our internal processes and controls with
respect to lease administration activities. Additionally, our
business involves lease agreements with our customers whereby we
are the lessor in the transaction. Accounting guidance for lessors
is largely unchanged. Our evaluation of this guidance is ongoing
and the impact that this new guidance will have on our financial
statements has not yet been determined.
In
January 2016, the FASB issued Accounting Standards Update No.
2016-01, Financial
Instruments—Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities-
the amendments in this Update are effective for fiscal years
beginning after December 15, 2017, including interim periods within
those fiscal years. The Partnership is currently evaluating the
effect that this ASU will have on its financial
statements.
9
3. Information Technology, Medical Technology, Telecommunications
Technology, Inventory Management Equipment
(“Equipment”)
The Partnership is the lessor of equipment under leases with
periods that generally will range from 12 to 48 months. In general,
associated costs such as repairs and maintenance, insurance and
property taxes are paid by the lessee.
Remarketing fees will be paid to the leasing companies from which
the Partnership purchases leases. These are fees that are earned by
the leasing companies when the initial terms of the lease have been
met. The General Partner believes that this strategy adds value
since it entices the leasing company to remain actively involved
with the lessees for potential extensions, remarketing or sale of
equipment. This strategy is designed to minimize any conflicts the
leasing company may have with a new lessee and may assist in
maximizing overall portfolio performance. The remarketing fee is
tied into lease performance thresholds and is a factor in the
negotiation of the fee. Remarketing fees incurred in connection
with lease extensions are accounted for as operating costs.
Remarketing fees incurred in connection with the sale of equipment
are included in the gain or loss calculations. For the nine months
ended September 30, 2017 and 2016, there were no remarketing fees
incurred and/or paid with cash or netted against receivables due
from such parties.
Gains from the termination of leases are recognized when the lease
is modified and terminated concurrently. Gains from lease
termination included in lease revenue for the nine months ended
September 30, 2017 and 2016 was approximately $0 and $1,000,
respectively.
CCC, on behalf of the Partnership and on behalf of other affiliated
companies and partnerships (“partnerships”), acquires
equipment subject to associated debt obligations and lease
agreements and allocates a participation in the cost, debt and
lease revenue to the various companies based on certain risk
factors.
The Partnership’s share of the cost of the equipment in which
it participates with other partnerships at September 30, 2017 was
approximately $726,000 and is included in the Partnership’s
equipment on its balance sheet. The Partnership’s share of
the outstanding debt associated with this equipment at September
30, 2017 was approximately $5,000 and is included in the
Partnership’s notes payable on its balance sheet. The total
cost of the equipment shared by the Partnership with other
partnerships at September 30, 2017 was approximately $2,244,000.
The total outstanding debt related to the equipment shared by
the Partnership at September 30, 2017 was approximately
$10,000.
The Partnership’s share of the cost of the equipment in which
it participates with other partnerships at September 30, 2016 was
approximately $731,000 and is included in the Partnership’s
equipment on its balance sheet. The Partnership’s share of
the outstanding debt associated with this equipment at September
30, 2016 was approximately $101,000 and is included in the
Partnership’s notes payable on its balance sheet. The total
cost of the equipment shared by the Partnership with other
partnerships at September 30, 2016 was approximately $2,753,000.
The total outstanding debt related to the equipment shared by
the Partnership at September 30, 2016 was approximately
$331,000.
10
The following is a schedule of approximate future minimum rentals
on non-cancellable operating leases at September 30,
2017:
For the period ended
December
|
Amount
|
Three months ended
December 31, 2017
|
$189,000
|
Year Ended December
31, 2018
|
541,000
|
Year Ended December
31, 2019
|
85,000
|
|
$815,000
|
The Partnership’s operational phase officially ended on
December 31, 2015 and the Fund is set to expire on December 31,
2017. If the Partnership should expire with a portfolio of active
leases, the General Partner will assume ownership of the remaining
active leases and any associated debt obligation for the duration
of the remaining lease term.
Finance Leases
The
following lists the approximate components of the net investment in
direct financing leases:
|
September
30, 2017
|
December 31,
2016
|
Total minimum lease
payments to be received
|
$14,000
|
$25,000
|
Estimated residual
value of leased equipment (unguaranteed)
|
7,000
|
7,000
|
Less: unearned
income
|
(1,000)
|
(2,000)
|
Net investment in
finance leases
|
$20,000
|
$30,000
|
We
assess credit risk for all of our customers, including those that
lease under finance leases. This credit risk is assessed using an
internally developed model which incorporates credits scores from
third party providers and our own customer risk ratings and is
periodically reviewed. Our internal ratings are weighted based on
the industry that the customer operates in. Factors taken into
consideration when assessing risk include both general and industry
specific qualitative and quantitative metrics. We separately take
in to consideration payment history, open lawsuits, liens and
judgments. Typically, we will not extend credit to a company that
has been in business for less than 5 years or that has filed for
bankruptcy within the same period. Our internally based model may
classify a company as high risk based on our analysis of their
audited financial statements and their payment history. Additional
considerations of high risk may include history of late payments,
open lawsuits and liens or judgments. In an effort to mitigate
risk, we typically require deposits from those in this
category.
A
reserve for credit losses is deemed necessary when payment has not
been received for one or more months of receivables due on the
equipment held under finance leases. At the end of each period,
management evaluates the open receivables due on this equipment and
determines the need for a reserve based on payment history and any
current factors that would have an impact on payments.
The
following table presents the credit risk profile, by
creditworthiness category, of our direct finance lease receivables
at September 30, 2017:
Risk Level
|
Percent of Total
|
Low
|
-%
|
Moderate-Low
|
-%
|
Moderate
|
-%
|
Moderate-High
|
100%
|
High
|
-%
|
Net
finance lease receivable
|
100%
|
11
As of
September 30, 2017 and December 31, 2016, we determined that we did
not have a need for an allowance for uncollectible accounts
associated with any of our finance leases, as the customer payment
histories with us, associated with these leases, has been positive,
with no late payments.
The
following is a schedule of approximate future minimum rentals on
non-cancelable direct financing leases at September 30,
2017:
|
Amount
|
Three months ended
December 31, 2017
|
$3,000
|
2018
|
8,000
|
2019
|
3,000
|
Total
|
$14,000
|
The
Partnership’s operational phase officially ended on December
31, 2015 and the Fund is scheduled to commence its wind down
process on December 31, 2017. If the Partnership should expire, the
General Partner will assume all remaining active leases at their
fair market value and related remaining revenue stream and any
associated debt obligation for the duration of the remaining lease
term.
4. Related Party Transactions
Receivables/Payables
As of
September 30, 2017 and December 31, 2016, the Partnership’s
related party receivables and payables are short term, unsecured,
and non-interest bearing.
Nine months ended September 30,
|
2017
|
2016
|
|
|
|
Reimbursable Expenses
|
|
|
Reimbursable
expenses, which are charged to the partnership by CCC in connection
with the administration and operation of the Partnership, are
allocated to the Partnership based upon several factors including,
but not limited to, the number of investors, compliance issues, and
the number of existing leases. For the nine months ended September
30, 2017 and 2016, no “Other LP” expense was charged to
the Partnership.
|
$58,000
|
$ 57,000
|
12
5. Notes Payable
Notes payable consisted of the following approximate
amounts:
|
September 30,
2017
|
December 31,
2016
|
Installment
note payable to bank; interest ranging from 3.68% due in monthly
installments of $822, including interest, with final payment in
February 2017
|
-
|
2,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments ranging from $227 to $239, including interest, with
final payment in February 2017
|
-
|
1,500
|
Installment
note payable to bank; interest at 4.23% due in quarterly
installments of $264, including interest, with final payment in
March 2017
|
-
|
500
|
Installment
note payable to bank; interest at 4.23% due in quarterly
installments of $1,327, including interest, with final payment in
April 2017
|
-
|
3,000
|
Installment
note payable to bank; interest at 4.23% due in quarterly
installments of $1,650, including interest, with final payment in
June 2017
|
-
|
3,000
|
Installment
note payable to bank; interest at 1.60% due in monthly installments
of $868, including interest, with final payment in July
2017
|
-
|
6,000
|
Installment
note payable to bank; interest at 4.85% due in quarterly
installments of $5,133, including interest, with final payment in
July 2017
|
-
|
15,000
|
Installment
note payable to bank; interest at 4.23% due in quarterly
installments of $305, including interest, with final payment in
August 2017
|
-
|
1,000
|
Installment
note payable to bank; interest at 3.98% due in monthly installments
of $8,544, including interest, with final payment in August
2017
|
-
|
67,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments ranging from $280 to $685, including interest, with
final payment in September 2017
|
-
|
4,000
|
Installment
note payable to bank; interest at 4.85% due in quarterly
installments of $1,751, including interest, with final payment in
September 2017
|
-
|
5,000
|
Installment
note payable to bank; interest at 4.23% due in quarterly
installments of $598, including interest, with final payment in
October 2017
|
500
|
2,000
|
Installment
notes payable to bank; interest ranging from 4.85% to 4.88% due in
monthly installments ranging from $1,058 to $2,087, including
interest, with final payment in October 2017
|
5,000
|
50,000
|
Installment
notes payable to bank; interest at 6.00% due in monthly
installments ranging from $84 to $880, including interest, with
final payment in November 2017
|
500
|
6,000
|
Installment
note payable to bank; interest at 4.23% due in quarterly
installments of $832, including interest, with final payment in
January 2018
|
2,000
|
4,000
|
Installment
note payable to bank; interest at 4.85% due in monthly installments
of $764, including interest, with final payment in January
2018
|
3,000
|
10,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments of $479, including interest, with final payment in
February 2018
|
6,000
|
14,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments ranging from $207 to $278, including interest, with
final payment in March 2018
|
2,500
|
6,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments ranging from $228 to $597, including interest, with
final payment in April 2018
|
4,500
|
9,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments ranging from $392 to $2,098, including interest, with
final payment in June 2018
|
11,000
|
21,000
|
Installment
note payable to bank; interest at 4.99% due in quarterly
installments of $1,350, including interest, with final payment in
June 2018
|
4,000
|
8,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments ranging from $361 to $6,707, including interest, with
final payment in July 2018
|
27,000
|
47,000
|
Installment
note payable to bank; interest at 3.98% due in monthly installments
of $10,321, including interest, with final payment in August
2018
|
111,000
|
200,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments ranging from $208 to $534, including interest, with
final payment in September 2018
|
4,000
|
7,000
|
Installment
notes payable to bank; interest ranging from 4.23% to 4.37% due in
quarterly installments ranging from $270 to $56,553, including
interest, with final payment in October 2018
|
298,000
|
469,000
|
Installment
notes payable to bank; interest at 6.00% due in monthly
installments ranging from $105 to $394, including interest, with
final payment in November 2018
|
4,000
|
7,000
|
Installment
notes payable to bank; interest at 4.23% due in quarterly
installments ranging from $350 to $352, including interest, with
final payment in November 2018
|
3,000
|
5,000
|
Installment
note payable to bank; interest at 4.98% due in monthly installments
of $5,937, including interest, with final payment in December
2018
|
86,000
|
135,000
|
Installment
notes payable to bank; interest at 6.00% due in monthly
installments ranging from $162 to $378, including interest, with
final payment in August 2019
|
7,000
|
10,000
|
Installment
note payable to bank; interest at 4.98% due in monthly installments
of $6,928, including interest, with final payment in December
2019
|
177,000
|
231,000
|
|
$756,000
|
$1,349,000
|
13
The
notes are secured by specific equipment with a carrying value of
approximately $1,214,000 and are nonrecourse liabilities of the
Partnership. As such, the notes do not contain any financial debt
covenants with which we must comply on either an annual or
quarterly basis.
Aggregate
approximate maturities of notes payable for each of the periods
subsequent to September 30, 2017 are as follows:
|
Amount
|
Three months ended
December 31, 2017
|
$153,000
|
Year
ended December 31, 2018
|
520,000
|
Year
ended December 31, 2019
|
83,000
|
|
$756,000
|
During 2015, the General Partner executed a collateralized debt
financing agreement on behalf of certain affiliates for a total
shared loan amount of approximately $847,000, of which the
Partnership’s share was approximately $52,000. The
Partnership’s portion of the current loan amount at September
30, 2017 was approximately $12,000 and is secured by specific
equipment under both operating and finance leases. The carrying
value of the secured equipment under operating and finance leases
at September 30, 2017 is approximately $2,000 and $19,000,
respectively.
The
Partnership’s operational phase officially ended on December
31, 2015 and the Fund is scheduled to commence its wind down
process on December 31, 2017. If the Partnership should expire with
a portfolio of active leases, the General Partner will assume the
obligation related to the remaining notes payable for the duration
of the remaining lease term.
14
6. Supplemental Cash Flow Information
Other noncash activities included in the determination of net loss
are as follows:
Nine months ended September 30,
|
2017
|
2016
|
Lease revenue net
of interest expense on notes payable realized as a result of direct
payment of principal by lessee to bank
|
$593,000
|
$627,000
|
No
interest or principal on notes payable was paid by the Partnership
because direct payment was made by lessee to the bank in lieu of
collection of lease income and payment of interest and principal by
the Partnership.
Noncash
investing and financing activities include the
following:
Nine months ended September 30,
|
2017
|
2016
|
Debt assumed in
connection with purchase of equipment
|
$-
|
$24,000
|
During the nine months ended September 30, 2017 and 2016, the
Partnership wrote-off fully amortized acquisition fees of
approximately $8,000.
7. Commitments and Contingencies
Investor Complaint
On November 10, 2015, certain investors (the
“Claimants”) of Commonwealth Income & Growth Fund V
(“CIGF5”) and Commonwealth Income & Growth Private
Fund III (“CIGPF3”) (Collectively referred to as the
“Funds”), filed an investor complaint with FINRA naming
CCSC and Ms. Springsteen-Abbott (the
“Respondents”). The Claimants, at the advice and
recommendation of their personal financial advisors, purchased
limited partnership units in CIGF5 between February 2005 and
February 2006 and in CIGPF3 between April 2005 and February
2007. The Claimants allege that the Respondents did not
properly perform their duties as fund manager. The Funds are
not members of FINRA and/or subject to its
jurisdiction.
The Respondents filed a complaint on December 23, 2015, against the
Claimants in the United States District Court for the District of
Maryland to enjoin the Claimants from proceeding with the
arbitration and requiring its dismissal. The Claimants
withdrew its complaint with FINRA on July 27, 2016. On August
1, 2016, the Respondents were granted voluntary dismissal in
Federal court given the withdrawal of the FINRA claim.
On September 28, 2016, 23 investors, in addition to the original
Claimants (the “Florida Claimants”) filed a complaint
in the United States District Court for the Middle District of
Florida, Albers et al. v. Commonwealth Capital Corp. et al., Case
No. 6:16-cv-01713-Orl-37DCI, against the Partnership, Commonwealth
Income & Growth Private Fund I, Commonwealth Income &
Growth Private Fund II, CIGPF3 and CIGF5. The allegation
consists of breach of contract, securities fraud, misstatement in
the prospectus, fraudulent concealment, negligence, common law
fraud (the “Original Complaint”). On October 18,
2016, the judge dismissed the Original Complaint without prejudice
with leave to refile. The judge dismissed the Original Complaint
for procedural failures. On October 28, 2016, the Florida Claimants
filed an amended complaint that included the original claims with
the addition of claims for negligent supervision and breach of
industry standards (“Amended Complaint’). On July 17,
2017 the United States Court for the Middle District of Florida
dismissed all claims and closed the file.
15
FINRA
On May 3, 2013, the FINRA Department of Enforcement filed a
complaint naming Commonwealth Capital Securities Corp.
(“CCSC”) and the owner of the firm, Kimberly
Springsteen-Abbott, as respondents; however on October 22, 2013,
FINRA filed an amended complaint that dropped the allegations
against CCSC and reduced the scope of the allegations against Ms.
Springsteen-Abbott. The sole remaining charge was that Ms.
Springsteen-Abbott had approved the misallocation of some expenses
to certain Funds.
Management believes that the expenses at issue include amounts that
were proper and that were properly allocated to Funds, and also
identified a smaller number of expenses that had been allocated in
error, but were adjusted and repaid to the affected Funds when they
were identified in 2012. During the period in question,
Commonwealth Capital Corp. (“CCC”) and Ms.
Springsteen-Abbott provided important financial support to the
Funds, voluntarily absorbed expenses and voluntarily waived fees in
amounts aggregating in excess of any questioned allocations. That
Panel ruled on March 30, 2015, that Ms. Springsteen-Abbott should
be barred from the securities industry because the Panel concluded
that she allegedly misallocated approximately $208,000 of expenses
involving certain Funds over the course of three years. As such,
management has allocated approximately $87,000 of the $208,000 in
allegedly misallocated expenses back to the affected funds as
a contingency accrual in CCC’s financial statements and a
good faith payment for the benefit of those Income
Funds.
Decisions issued by FINRA's Office of Hearing Officers may be
appealed to FINRA's National Adjudicatory Council (NAC) pursuant to
FINRA Rule 9311. The NAC Decision upheld the Panel’s
ruling. The bar took effect on August 23, 2016. Ms.
Springsteen-Abbott appealed the NAC Decision to the SEC. On
March 31, 2017, the SEC remanded the matter back to FINRA for
further consideration consistent with the SEC’s remand, but
did not suggest any view as to a particular
outcome.
On July 21, 2017, FINRA reaffirmed its position on the bar from the
securities industry, but reduced the list of 1,840 items totaling
$208,000 to a remaining list of 84 items totaling $36,226, and
reduced the proposed fine from $100,000 to $50,000. On August 14,
2017 respondents appealed FINRA’s revised ruling. As of
November 14, 2017, management believes that final resolution will
not result in any material adverse financial impact on the Funds,
but no assurance can be provided until the legal matter is
resolved. Ms. Springsteen-Abbott has filed a Notice of Appeal and
Preliminary Statement with the SEC.
Item 2: Management’s Discussion and Analysis of Financial
Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This
section, as well as other portions of this document, includes
certain forward-looking statements about our business and our
prospects, tax treatment of certain transactions and accounting
matters, sales of securities, expenses, cash flows, distributions,
investments and operating and capital requirements. Such
forward-looking statements include, but are not limited to:
acquisition policies of our general partner; the nature of present
and future leases; provisions for uncollectible accounts; the
strength and sustainability of the U.S. economy; the continued
difficulties in the credit markets and their impact on the economy
in general; and the level of future cash flow, debt levels,
revenues, operating expenses, amortization and depreciation
expenses. You can identify those statements by the use of words
such as “could,” “should,”
“would,” “may,” “will,”
“project,” “believe,”
“anticipate,” “expect,” “plan,”
“estimate,” “forecast,”
“potential,” “intend,”
“continue” and “contemplate,” as well as
similar words and expressions.
Actual
results may differ materially from those in any forward-looking
statements because any such statements involve risks and
uncertainties and are subject to change based upon various
important factors, including, but not limited to, nationwide
economic, financial, political and regulatory conditions; the
health of debt and equity markets, including interest rates and
credit quality; the level and nature of spending in the
information, medical and telecommunications technologies markets;
and the effect of competitive financing alternatives and lease
pricing.
Readers
are also directed to other risks and uncertainties discussed in
other documents we file with the SEC, including, without
limitation, those discussed in Item 1A. “Risk Factors”
of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016 filed with the SEC. We undertake no obligation to
update or revise any forward-looking information, whether as a
result of new information, future developments or
otherwise.
16
INDUSTRY OVERVIEW
The
Equipment Leasing and Finance Association’s (ELFA) Monthly
Leasing and Finance Index (MLFI-25), which reports economic
activity from 25 companies representing a cross section of the $1
trillion equipment finance sector, showed their overall new
business volume for September was $8.7 billion, down 7%
year-over-year from new business volume in September 2016. Volume
was up 12% month-to-month from $7.8 billion in August. Year to
date, cumulative new business volume was up 4% compared to 2016.
Receivables over 30 days were 1.40%, down from 1.50% the previous
month and down from 1.50% in the same period in 2016. Charge-offs
were 0.40%, down from 0.44% the previous month, and down from 0.46
in the year-earlier period. Credit approvals totaled 74% in
September, down from 75.3% in August. Total headcount for equipment
finance companies was up 16.5% year over year, largely attributable
to continued acquisition activity at an MLFI reporting company.
Separately, the Equipment Leasing & Finance Foundation’s
Monthly Confidence Index (MCI-EFI) for October is 63.7, unchanged
from September.
CRITICAL ACCOUNTING POLICIES
Our
discussion and analysis of our financial condition and results of
operations are based upon our financial statements which have been
prepared in accordance with generally accepted accounting
principles in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses.
We base these estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
We
believe that our critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
financial statements.
See
Note 2 to our condensed financial statements included herein for a
discussion of recent accounting pronouncements.
LEASE INCOME RECEIVABLE
Lease
income receivable includes current lease income receivable net of
allowances for uncollectible amounts. The Partnership monitors
lease income receivable to ensure timely and accurate payment by
lessees. Its Lease Relations department is responsible for
monitoring lease income receivable and, as necessary, resolving
outstanding invoices.
The
Partnership reviews a customer’s credit history before
extending credit. The Partnership may establish an allowance for
uncollectible lease income receivable based upon the credit risk of
specific customers, historical trends and other information when
the analysis indicates that the probability of full collection is
unlikely. The Partnership writes off its accounts receivable when
it determines that it is uncollectible and all economically
sensible means have been exhausted.
REVENUE RECOGNITION
Through
September 30, 2017, the Partnership’s lease portfolio
consisted of operating and finance leases. For operating leases,
lease revenue is recognized on a straight-line basis in accordance
with the terms of the lease agreements.
Finance
lease interest income is recorded over the term of the lease using
the effective interest method. For finance leases, we record, at
lease inception, unearned finance lease income which is calculated
as follows: total lease payments, plus any residual values and
initial direct costs, less the cost of the leased
equipment.
17
Upon
the end of the lease term, if the lessee has not met the return
conditions as set out in the lease, the Partnership is entitled, in
certain cases, to additional compensation from the lessee. The
Partnership’s accounting policy for recording such payments
is to treat them as revenue.
Gain or
losses from sales of leased and off lease equipment are recorded on
a net basis in the Fund’s condensed Statement of
Operations.
Our
leases do not contain any step-rent provisions or escalation
clauses nor are lease revenues adjusted based on any
index.
Gains
from the termination of leases are recognized when the lease is
modified and terminated concurrently. Gains from lease termination
included in lease revenue for both the six months ended September
30, 2017 and 2016 was approximately $0 and $1,000,
respectively.
LONG-LIVED ASSETS
Depreciation
on equipment for financial statement purposes is based on the
straight-line method estimated generally over useful lives of two
to four years. Once an asset comes off lease or is re-leased, the
Partnership reassesses the useful life of an asset.
The
Partnership evaluates its long-lived assets when events or
circumstances indicate that the value of the asset may not be
recoverable. The Partnership determines whether impairment exists
by estimating the undiscounted cash flows to be generated by each
asset. If the estimated undiscounted cash flows are less than the
carrying value of the asset then impairment exists. The amount of
the impairment is determined based on the difference between the
carrying value and the fair value. Fair value is determined based
on estimated discounted cash flows to be generated by the asset,
third party appraisals or comparable sales of similar assets, as
applicable, based on asset type.
Residual
values are determined by management and are calculated using
information from both internal and external sources, as well as
other economic indicators.
LIQUIDITY AND CAPITAL RESOURCES
Our
primary sources of cash for the nine months ended September 30,
2017 were cash proceeds from the sale of equipment of approximately
$118,000 and payments received from finance leases of approximately
$11,000. This compares to the nine months ended September 30,
2016 where our primary sources of cash were cash provided by
operating activities of approximately $21,000, cash proceeds from
the sale of equipment of approximately $7,000 and payments received
from finance leases of approximately $13,000.
Our
primary use of cash for the nine months ended September 30, 2017
was approximately 0. Our primary use of cash for the nine
months ended September 30, 2016 was for the purchase of new
equipment of approximately $30,000.
For the
nine months ended September 30, 2017, cash was used in operating
activities of approximately $114,000, which includes net loss of
approximately $21,000 and depreciation and amortization expenses of
approximately $598,000. Other non-cash activities included in
the determination of net income were direct payments of lease
income by lessees to banks of approximately $593,000. For the nine
months ended September 30, 2016, cash was provided by operating
activities of approximately $21,000, which includes net loss of
approximately $35,000 and depreciation and amortization expenses of
approximately $669,000. Other non-cash activities included in
the determination of net income were direct payments of lease
income by lessees to banks of approximately $627,000.
18
At
September 30, 2017, cash was held in one bank account maintained at
one financial institution with a balance of approximately
$38,000. Bank accounts are federally
insured up to $250,000 by the FDIC. At September 30, 2017, the
total cash bank balance was as follows:
At June 30, 2017
|
Balance
|
Total
bank balance
|
$38,000
|
FDIC
insured
|
(38,000)
|
Uninsured
amount
|
$-
|
The
Partnership's deposits are fully insured by the FDIC. The
Partnership has not experienced any losses in our accounts, and
believes it is not exposed to any significant credit risk. The
amounts in such accounts will fluctuate throughout 2017 due to many
factors, including cash receipts and interest rates.
Our investment strategy of acquiring equipment and generally
leasing it under triple-net leases to operators who generally meet
specified financial standards minimizes our operating expenses.
As of September 30, 2017, we had future minimum rentals on
non-cancelable operating leases of approximately $189,000 for the
balance of the year ending December 31, 2017 and approximately
$626,000 thereafter. As of September 30, 2017, we had future
minimum rentals on non-cancelable finance leases of approximately
$3,000 for the balance of the year ending December 31, 2017 and
approximately $11,000 thereafter.
As of September 30, 2017, our non-recourse debt was approximately
$756,000, with interest rates ranging from 1.60% through 6.00% and
will be payable through December 2019. During 2015, the General
Partner executed a collateralized debt financing agreement on
behalf of certain affiliates for a total shared loan amount of
approximately $847,000, of which the Partnership’s share was
approximately $52,000. The Partnership’s portion of the
current loan amount at September 30, 2017 was approximately $12,000
and is secured by specific equipment under both operating and
finance leases. The carrying value of the secured equipment under
operating leases is approximately $2,000. The carrying value
of the secured equipment under finance leases is approximately
$19,000.
Commonwealth Capital Corp., on our behalf and on behalf of other
affiliated partnerships, acquires equipment subject to associated
debt obligations and lease revenue and allocates a participation in
the cost, debt and lease revenue to the various partnerships based
on certain risk factors.
Our
cash from operations is expected to continue to be adequate to
cover all operating expenses and liabilities during the next
12-month period. The
General Partner continues to suspend limited partner distributions
for the nine month period ended September 30, 2017. The General
Partner will reassess the funding of limited partner distributions
on a quarterly basis, throughout 2017. The General Partner
and CCC will also determine if related party payables owed to them
by the Partnership may be deferred (if deemed necessary) in an
effort to increase the Partnership’s cash flow.
The
Partnership was originally scheduled to end its operational phase
on December 31, 2013. During the year ended December 31,
2013, the operational phase was officially extended to December 31,
2015 through a proxy vote initiated by the General Partner.
The Partnership’s operational phase ended on December 31,
2015. The Fund is scheduled to commence its wind down process
on December 31, 2017. The General Partner has not formally
approved a plan for liquidation at this time. As such, the
Partnership will continue to report its financial statements on a
going concern basis until a formal plan of liquidation is approved
by the General Partner.
In an
effort to increase cash flow, the General Partner elected to forgo
distributions and allocations of net income owed to it, and
suspended limited partner distributions during the nine months
ended September 30, 2017. The General Partner and CCC also waived
certain fees owed to them by the Partnership in an effort to
further support the Partnership.
19
The
General Partner and CCC have committed to fund, either through cash
contributions and/or forgiveness of indebtedness, any necessary
operational cash shortfalls of the Partnership through September
30, 2018. The General Partner will continue to reassess the funding
of limited partner distributions throughout 2017 and will continue
to waive certain fees if the General Partner determines it is in
the best interest of the Partnership to do so. If available cash
flow or net disposition proceeds are insufficient to cover the
Partnership expenses and liabilities on a short and long term
basis, the Partnership may attempt to obtain additional funds by
disposing of or refinancing equipment, or by borrowing within its
permissible limits.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2017 compared to Three Months
Ended September 30, 2016
Lease Revenue
Lease revenue decreased to approximately $224,000 for the three
months ended September 30, 2017, from $249,000 for the three months
ended September 30, 2016. This decrease was primarily due to a
decrease in the number and size of active leases generating lease
revenue for the Partnership.
The Partnership had 78 and 105 active operating leases that
generated lease revenue of approximately $224,000 and $249,000
during the three months ended September 30, 2017 and 2016,
respectively. Management does not expect to acquire new
leases as the Partnership’s operational phase ended on
December 31, 2015.
Sale of Equipment
For the three months ended September 30, 2017, the Partnership sold
equipment with net book value of approximately $133,000 for a net
loss of approximately $26,000. For the three months ended
September 30, 2016, the Partnership had no equipment
sales.
Operating Expenses
Our operating expenses, excluding depreciation, primarily consist
of accounting, legal, outside service fees and reimbursement of
expenses to CCC, a related party, for administration and operation
of the Partnership. Operating expenses were approximately $8,000
and $12,000 for the three months ended September 30, 2017 and 2016,
respectively. This change is primarily due to a decrease in
investor services expenses of approximately $3,000.
Depreciation and Amortization Expense
Depreciation and amortization expenses consist of depreciation on
equipment and amortization of equipment acquisition
fees. Depreciation and amortization expenses for the
three months ended September 30, 2017 and 2016 were approximately
$192,000 and $221,000, respectively.
Net Loss
For the three months ended September 30, 2017, we recognized
revenue of approximately $224,000 and expenses of approximately
$236,000, resulting in net loss of approximately $12,000. For
the three months ended September 30, 2016, we recognized revenue of
approximately $250,000 and expenses of approximately $253,000,
resulting in net loss of approximately $3,000. This change in
net loss is primarily due to the changes in revenue and expenses as
described above.
20
Nine Months Ended September 30, 2017 compared to Nine Months Ended
September 30, 2016
Lease Revenue
Lease revenue decreased to approximately $700,000 for the nine
months ended September 30, 2017, from $757,000 for the nine months
ended September 30, 2016. This decrease was primarily due to a
decrease in the size of active leases generating lease revenue for
the Partnership.
The Partnership had 98 and 113 active operating leases that
generated lease revenue of approximately $700,000 and $757,000
during the nine months ended September 30, 2017 and 2016,
respectively. Management does not expect to acquire new
leases as the Partnership’s operational phase ended on
December 31, 2015.
Sale of Equipment
For the nine months ended September 30, 2017, the Partnership sold
equipment held under operating leases with net book value of
approximately $142,000, for a net loss of approximately $24,000.
For the nine months ended September 30, 2016, the Partnership
sold equipment held under operating leases with net book value of
approximately $6,000, for a net gain of approximately
$1,000.
Operating Expenses
Our operating expenses, excluding depreciation, primarily consist
of accounting, legal, outside service fees and reimbursement of
expenses to CCC, a related party, for administration and operation
of the Partnership. These expenses decreased to approximately
$62,000 for the nine months ended September 30, 2017, compared to
$63,000 for the nine months ended September 30, 2016. This
change is primarily due to a decrease in accounting fees and
financial reporting expenses as a result of a change in software
used for SEC electronic filing of approximately $5,000, a decrease
in investor services expenses of approximately $3,000, a decrease
in accounting fees of approximately $3,000 and a decrease in IT
related expenses of approximately $3,000, partially offset by an
increase in legal fees of approximately $13,000.
Depreciation and Amortization Expense
Depreciation
and amortization expenses consist of depreciation on equipment,
including impairment charges, and amortization of equipment
acquisition fees. Depreciation and
amortization expense for the nine months ended September 30, 2017
and 2016 were approximately $598,000 and $669,000,
respectively.
Net Loss
For the nine months ended September 30, 2017, we recognized revenue
of approximately $703,000 and expenses of approximately $724,000,
resulting in a net loss of approximately $21,000. For the
nine months ended September 30, 2016, we recognized revenue of
approximately $760,000 and expenses of approximately $795,000,
resulting in a net loss of approximately $35,000. This change
in net income is primarily due to the changes in revenue and
expenses as described above.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
N/A
Item 4. Controls and Procedures
Our
management, under the supervision and with the participation of the
General Partner’s Chief Executive Officer and Principal
Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures related to our reporting and
disclosure obligations as of the end of the period covered by this
Quarterly Report on Form 10-Q. Based on such evaluation, the
General Partner’s Chief Executive Officer and Principal
Financial Officer have concluded that, as of September 30, 2017,
our disclosure controls and procedures are effective in ensuring
that information relating to us which is required to be disclosed
in our periodic reports filed or submitted under the Securities
Exchange Act of 1934 is (a) recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and (b) accumulated
and communicated to management, including the General
Partner’s Chief Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure. There were no changes in the
Partnership’s internal control over financial reporting
during the third quarter of 2017 that have materially affected or
are reasonably likely to materially affect its internal control
over financial reporting.
21
Part II: OTHER INFORMATION
Item 1.
Legal
Proceedings
Investor Complaint
On November 10, 2015, certain investors (the
“Claimants”) of Commonwealth Income & Growth Fund V
(“CIGF5”) and Commonwealth Income & Growth Private
Fund III (“CIGPF3”) (Collectively referred to as the
“Funds”), filed an investor complaint with FINRA naming
CCSC and Ms. Springsteen-Abbott (the
“Respondents”). The Claimants, at the advice and
recommendation of their personal financial advisors, purchased
limited partnership units in CIGF5 between February 2005 and
February 2006 and in CIGPF3 between April 2005 and February
2007. The Claimants allege that the Respondents did not
properly perform their duties as fund manager. The Funds are
not members of FINRA and/or subject to its
jurisdiction.
The Respondents filed a complaint on December 23, 2015, against the
Claimants in the United States District Court for the District of
Maryland to enjoin the Claimants from proceeding with the
arbitration and requiring its dismissal. The Claimants
withdrew its complaint with FINRA on July 27, 2016. On August
1, 2016, the Respondents were granted voluntary dismissal in
Federal court given the withdrawal of the FINRA claim.
On September 28, 2016, 23 investors, in addition to the original
Claimants (the “Florida Claimants”) filed a complaint
in the United States District Court for the Middle District of
Florida, Albers et al. v. Commonwealth Capital Corp. et al., Case
No. 6:16-cv-01713-Orl-37DCI, against the Partnership, Commonwealth
Income & Growth Private Fund I, Commonwealth Income &
Growth Private Fund II, CIGPF3 and CIGF5. The allegation
consists of breach of contract, securities fraud, misstatement in
the prospectus, fraudulent concealment, negligence, common law
fraud (the “Original Complaint”). On October 18,
2016, the judge dismissed the Original Complaint without prejudice
with leave to refile. The judge dismissed the Original Complaint
for procedural failures. On October 28, 2016, the Florida Claimants
filed an amended complaint that included the original claims with
the addition of claims for negligent supervision and breach of
industry standards (“Amended Complaint’). On July 17,
2017 the United States Court for the Middle District of Florida
dismissed all claims and closed the file.
FINRA
On May 3, 2013, the FINRA Department of Enforcement filed a
complaint naming Commonwealth Capital Securities Corp.
(“CCSC”) and the owner of the firm, Kimberly
Springsteen-Abbott, as respondents; however on October 22, 2013,
FINRA filed an amended complaint that dropped the allegations
against CCSC and reduced the scope of the allegations against Ms.
Springsteen-Abbott. The sole remaining charge was that Ms.
Springsteen-Abbott had approved the misallocation of some expenses
to certain Funds.
Management believes that the expenses at issue include amounts that
were proper and that were properly allocated to Funds, and also
identified a smaller number of expenses that had been allocated in
error, but were adjusted and repaid to the affected Funds when they
were identified in 2012. During the period in question,
Commonwealth Capital Corp. (“CCC”) and Ms.
Springsteen-Abbott provided important financial support to the
Funds, voluntarily absorbed expenses and voluntarily waived fees in
amounts aggregating in excess of any questioned allocations. That
Panel ruled on March 30, 2015, that Ms. Springsteen-Abbott should
be barred from the securities industry because the Panel concluded
that she allegedly misallocated approximately $208,000 of expenses
involving certain Funds over the course of three years. As such,
management has allocated approximately $87,000 of the $208,000 in
allegedly misallocated expenses back to the affected funds as
a contingency accrual in CCC’s financial statements and a
good faith payment for the benefit of those Income
Funds.
Decisions issued by FINRA's Office of Hearing Officers may be
appealed to FINRA's National Adjudicatory Council (NAC) pursuant to
FINRA Rule 9311. The NAC Decision upheld the Panel’s
ruling. The bar took effect on August 23, 2016. Ms.
Springsteen-Abbott appealed the NAC Decision to the SEC. On
March 31, 2017, the SEC remanded the matter back to FINRA for
further consideration consistent with the SEC’s remand, but
did not suggest any view as to a particular
outcome.
On July 21, 2017, FINRA reaffirmed its position on the bar from the
securities industry, but reduced the list of 1,840 items totaling
$208,000 to a remaining list of 84 items totaling $36,226, and
reduced the proposed fine from $100,000 to $50,000. On August 14,
2017 respondents appealed FINRA’s revised ruling. As of
November 14, 2017, management believes that final resolution will
not result in any material adverse financial impact on the Funds,
but no assurance can be provided until the legal matter is
resolved. Ms. Springsteen-Abbott has filed a Notice of Appeal and
Preliminary Statement with the SEC.
22
Item
1A. Risk
Factors
N/A
Item 2.
Unregistered Sales of Equity
Securities and Use of Proceeds
N/A
Item 3.
Defaults Upon Senior
Securities
N/A
Item 4.
Mine Safety
Disclosures
N/A
Item 5.
Other
Information
NONE
Item 6.
Exhibits
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
COMMONWEALTH
INCOME & GROWTH FUND IV
|
|
BY:
COMMONWEALTH INCOME & GROWTH FUND, INC., General
Partner
|
|
|
November 14, 2017
|
By:
/s/ Kimberly A.
Springsteen-Abbott
|
Date
|
Kimberly
A. Springsteen-Abbott
|
|
Chief
Executive Officer
|
Commonwealth
Income & Growth Fund, Inc.
|
|
|
|
|
|
November 14, 2017
|
By:
/s/ Lynn A.
Whatley
|
Date
|
Lynn A.
Whatley
|
|
Executive
Vice President, Chief Operating Officer
|
24